Saving and Investing

 Always pay yourself first!  All little can go a long way  Don’t save your money under your mattress! (and other savings mistakes people make)  Get a savings portfolio  Diversity is good

 Saving money is an essential part of your financial fitness.  In tough economic times, making ends meet often takes precedence over setting money aside.  An emergency savings account of at least three to six months' expenses, however, becomes even more important when the risks of a job loss or other financial setback are higher.  However, a good starting goal for saving can be one month of your expenses.

passbook account (Basic Bank Savings Account)  Depositor receives a booklet in which deposits, withdrawals, and interest are recorded.  Average interest rate is lower at banks and savings and loans than at credit unions.  Funds are easily accessible. No minimum deposit is required. Money Market Account  Usually have higher interest rate, but will typically require you to have more money in the account.  You also may be limited to how many withdrawals you can make in a month.  Sometimes, in addition to the withdrawals, you can also write up to the three checks on a money market account each month. interest-earning checking account  Combines benefits of checking and savings. Although have lower interest rate  Depositor earns interest on any unused money in his/her account.  Minimum balance requirement and fees attached if balance falls below that balance

what they are and how they work  Checking/savings account.  Interest rate paid built on a complex structure that varies with size of balance and current level of market interest rates.  Can access your money from an ATM, a teller, or by writing up to three checks a month. benefits  Immediate access to your money. trade-offs  Usually requires a minimum balance of $1,000 to $2,500.  Limited number of checks can be written each month.  Average yield (rate of return) higher than regular savings accounts.

what they are and how they work  Bank pays a fixed amount of interest for a fixed amount of money during a fixed amount of time. benefits  No risk  Simple  No fees  Offers higher interest rates than savings accounts. trade-offs  Restricted access to your money  Withdrawal penalty if cashed before expiration date (penalty might be higher than the interest earned) types of certificates of deposit 1. Rising-rate CDs with higher rates at various intervals, such as every six months. 2. Stock-indexed CDs with earnings based on the stock market. 3. Callable CDs with higher rates and long-term maturities, as high as 10–15 years. However, the bank may “call” the account after a stipulated period, such as one or two years, if interest rates drop. 4. Global CDs combine higher interest with a hedge on future changes in the dollar compared to other currencies. 5. Promotional CDs attempt to attract savers with gifts or special rates.

 Here’s how CDs work: When you purchase a CD, you invest a fixed sum of money for a fixed period of time – six months, one year, five years, or more – and, in exchange, the issuing bank pays you interest, typically at regular intervals.  When you cash in or redeem your CD at maturity, you receive the money you originally invested plus any accrued interest.  But if you redeem your CD before it matures, you may have to pay an "early withdrawal" penalty or forfeit a portion of the interest you earned.

 At one time, most CDs paid a fixed interest rate until they reached maturity.  But, like many other products in today’s markets, CDs have become more complicated.  Investors may now choose among variable rate CDs, long-term CDs, and CDs with special redemption features in the event the owner dies.

what they are  A bond is an “IOU,” certifying that you loaned money to a government or corporation and outlining the terms of repayment. how they work  Buyer may purchase bond at a discount. The bond has a fixed interest rate for a fixed period of time. When the time is up, the bond is said to have “matured” and the buyer may redeem the bond for the full face value. types Corporate  Sold by private companies to raise money.  If company goes bankrupt, bondholders have first claim to the assets, before stockholders. Municipal  Issued by any non-federal government.  Interest paid comes from taxes or from revenues from special projects. Earned interest is exempt from federal income tax. Federal government  The safest investment you can make. Even if U.S. government goes bankrupt, it is obligated to repay bonds.

 Why people buy US Savings Bonds There are several reasons why Americans buy Savings Bonds. Often safety is cited as a primary reason. Savings Bonds are backed by the full faith and credit of the United States Government, therefore, the principal and interest will never be lost due to changes in the financial markets.  Savings Bonds are also free from ALL state and local income taxes. You can also defer federal income taxes on the earnings if you wait until the bond reaches final maturity or when you cash it in.  You can invest as little as $25 (and even smaller amounts from Payroll Deductions Plans), so it is an easy way for Americans to save. Some Savings Bonds are even entirely Federal Income Tax Free if used for Educational Purposes.

what they are  Stock represents ownership of a corporation. Stockholders own a share of the company and are entitled to a share of the profits as well as a vote in how the company is run. how earnings are made  Company profits may be divided among shareholders in the form of dividends. Dividends are usually paid quarterly.  Larger profits can be made through an increase in the value of the stock on the open market. advantages  If the market value goes up, the gain can be considerable.  Money is easily accessible. disadvantages  If market value goes down, the loss can be considerable.  Selecting and managing stock often requires study and the help of a good brokerage firm.